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Gross Profit

Also called: gross income from sales, gross earnings

Definition: Gross profit is net sales minus the cost of goods sold: the money left from selling a product after its direct costs, before operating expenses, interest and tax.

Updated November 7, 2026 · How we check facts

Gross profit is what remains of a company's sales after subtracting the direct cost of producing or buying what it sold. The SEC's guide to financial statements describes it as net revenue minus the cost of sales, and calls it "gross" because other expenses, such as rent and wages, have not yet been deducted.

Formula

gross profit = net sales − cost of goods sold (COGS)

Net sales is revenue after discounts and returns. COGS covers direct costs such as materials, packaging and inbound shipping.

Example

A shop sells $12,500 of goods that cost $4,500 to buy and pack. Gross profit = 12,500 − 4,500 = $8,000. Divided by sales, that is a gross margin of 64%; divided by cost, it is a markup of 177.8%.

Gross profit vs net income

Gross profit stops after direct costs. Net income also removes operating expenses, interest and tax, so it is always lower or equal. The profit calculator shows both, and the guide on how to calculate profit margin works through the full chain.

Calculate it

Free toolProfit CalculatorProfit, margin and break-even in one place.Free toolMarkup CalculatorMarkup, margin, profit and price in one place.

Guides that explain it

Related terms

Gross MarginGross margin is gross profit as a percentage of sales: (sales − cost of goods sold) ÷ sales × 100. It shows how much of each sales dollar remains after direct costs.Net IncomeNet income, also called net profit or net earnings, is what a business has left after deducting all expenses from revenue, including cost of goods sold, operating costs, interest and income tax.MarkupMarkup is the amount added to a product's cost to reach its selling price, usually expressed as a percentage of cost: (price − cost) ÷ cost × 100.Net Profit MarginNet profit margin is net income as a percentage of sales: net income ÷ sales × 100. It shows how much of each sales dollar remains after every expense, interest and tax included.401(k)A 401(k) is an employer-sponsored retirement savings plan in which employees contribute part of their pay, often with employer matching, up to annual limits set by the IRS.Annual Percentage Rate (APR)Annual percentage rate (APR) is the cost of credit expressed as a yearly rate; for many loans it combines the interest rate with certain fees charged when the loan is made.Annual Percentage Yield (APY)Annual percentage yield (APY) is the total interest a deposit account pays over a 365-day period, expressed as a percentage that includes the effect of compounding.Catch-Up ContributionA catch-up contribution is an extra amount that people age 50 or older may add to a 401(k) or similar retirement plan above the normal annual limit, if the plan permits it.

Sources

  1. U.S. Securities and Exchange Commission — Beginners' Guide to Financial Statements